1993 (4) TMI 100 - AT - Income Tax

Penalties u/ss 271D and 271E quashed for internal fund adjustments, provisions held directory with reasonable cause

ITAT set aside penalties imposed under ss. 271D and 271E for alleged contravention of ss. 269SS and 269T. It held that the validity of penalty must be ... Levy of penalty respectively under sections 271D and 271E - Directory Or mandatory in nature - cash deposits or loans - violation of the provisions of section 269SS - scope and ambit of section 269SS and section 269T - transactions falling within the purview of - expression ' loan or deposit ' found in section 269SS or the expression ' deposit ' found in section 269T - HELD THAT:- The law applicable would be the law as it stood on that date when the alleged ' offending ' transactions (that is, the transactions that were in contravention of sections 269SS/269T) took place. The argument that the revenue not having initiated prosecution when the repealed provisions were in force would find it helpless to initiate any action after the repealing provisions have come into force cannot deter us from holding that the order under sections 271D and 271E are void ab initio as having been passed without jurisdiction. No doubt, the Tribunal as a creature of the statute cannot entertain the question of ultra vires of the provisions of an Act as it is foreign to the scope of its jurisdiction. That does not mean that if an Act has been declared ultra vires the Constitution by an High Court, the Tribunal should not take congnizance of such a decision in deciding the dispute between the taxpayer and Commissioner. - It is settled law that in case of conflicting decisions and in the absence of a decision one way or the other by the jurisdictional High Court on the issue, the decision that is more in favour to the subject can be adopted and applied. We respectfully follow the decision of the Madras High Court in the case of Kumari A. B. Shanthi [1992 (4) TMI 38 - MADRAS HIGH COURT] and hold that the penalty on the basis of section 269SS levied under section 271D is void ab intio. In Hindustan Steel Ltd v. State of Orissa [1969 (8) TMI 31 - SUPREME COURT], the Apex Court observed whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judiciously and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act. Further in terms of section 273B penalty is not imposable if the person proves that there was reasonable cause for the failure to observe the statutory provisions. Thus, we uphold the contention of Sri Srinivasan that the impugned provisions (ss. 271D & 271E) are only directory and not mandatory in nature. The transactions inter se between the sister concerns and the assessee cannot partake of the nature of either ' deposit ' or ' loan ', though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of accounts of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting a deposit or accepting a loan. Therefore, we hold that the transactions as are found in the books of accounts of the assessee cannot be termed as deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business. Further, the transactions have not been impeached as non-genuine or bogus. Hence the provisions of sections 269SS and 269T are not attracted to the facts of the case. Even if they were to apply, in the facts and circumstances explained above, the action of the assessee firm in accepting the funds in cash or making refunds of such funds in cash can be ascribed to its bona fide belief that it would not attract the provisions of sections 269SS or 269T given the nature of the transactions and the circumstances of its case. Bona fide belief coupled with the genuineness of the transactions will constitute reasonable cause for not invoking the provisions of sections 271D and 271E. In this view of the matter also we cancel the order of penalty under sections 271D and 271E. In the result, the appeals are allowed. Issues involved:1. Levy of penalty u/s 271D for violation of section 269SS.2. Levy of penalty u/s 271E for violation of section 269T.3. Applicability of penal provisions retrospectively.4. Constitutionality of sections 269SS and 269T.5. Nature of transactions between sister concerns.Summary:1. Levy of penalty u/s 271D for violation of section 269SS:The appellant, a registered firm engaged in money-lending, was penalized u/s 271D for accepting cash deposits/loans of Rs. 57,95,000 in violation of section 269SS. The appellant contended that these were transfers between sister concerns, not loans or deposits, and were accounted for without any concealment. The CIT (Appeals) partially accepted this, reducing the penalty to Rs. 29,95,000.2. Levy of penalty u/s 271E for violation of section 269T:Similarly, the appellant was penalized u/s 271E for repaying deposits of Rs. 58,50,000 in cash, violating section 269T. The CIT (Appeals) reduced this penalty to Rs. 23,90,000. The appellant argued that these were intra-group fund transfers, not deposits, and thus outside the scope of section 269T.3. Applicability of penal provisions retrospectively:The Tribunal held that sections 271D and 271E, effective from 1-4-1989, could not apply retrospectively to transactions before this date. It cited CBDT Circulars clarifying that these provisions apply to transactions after 1-4-1989. The Tribunal rejected the revenue's argument that these provisions should apply to the assessment year 1989-90, as the transactions occurred in the previous year ending 31-3-1989.4. Constitutionality of sections 269SS and 269T:The appellant argued that section 269SS was declared ultra vires by the Madras High Court in Kumari A.B. Shanthi, and hence section 269T should also be considered ultra vires. The Tribunal, favoring the taxpayer, followed the Madras High Court's decision, despite conflicting decisions, and held the penalties u/s 271D and 271E void ab initio.5. Nature of transactions between sister concerns:The Tribunal examined whether the transactions between the appellant and its sister concerns constituted 'deposits' or 'loans.' It concluded that these were fund transfers within a group managed by the same individuals, without the characteristics of formal loans or deposits. The transactions were genuine and not aimed at tax evasion. Thus, sections 269SS and 269T were not applicable. Even if applicable, the appellant's bona fide belief and genuine nature of transactions provided reasonable cause to cancel the penalties.Conclusion:The Tribunal allowed the appeals, canceling the penalties u/s 271D and 271E, holding that the transactions did not attract the provisions of sections 269SS and 269T, and even if they did, there was reasonable cause for the appellant's actions.